Will rising cotton prices buy a million U.S. acres?

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Recent strength in cotton prices could result in an increase in U.S. acreage in 2010, including California and Arizona, according to Jarral Neeper, president of Calcot, speaking at the Ag Market Network’s December teleconference.

“This year, California planted 190,000 acres, and it’s completely within reason that we could get close to 300,000 acres in 2010. It could be more if we get adequate water. We also could see an increase in Arizona cotton acreage, perhaps to as high as 200,000 acres.”

Neeper says that total U.S. cotton acreage “could be up by as much as a million acres this year, maybe more depending on where prices go in the spring. But I don’t think we’ve seen prices get high enough yet.”

A million-acre increase in cotton acres with modest abandonment and a 1.4 bale yield on the additional acres, “would give us an additional 1.4 million bales of cotton and a crop approaching 14 million to 15 million bales.

“Fifteen million bales combined with an expected carryover of 4.5 million bales comes to 19.5 million bales, which won’t be terribly excessive for the 2010 crop year.”

On pricing, Neeper says growers “have a little time to wait before they do anything. The nearby contract is going to stay high enough to keep new crop elevated. If we go into the early part of 2010, and the nearby contract – March or May – continues to 79 cents to the low 80s, it’s going to help bring new crop up with it.”

Mike Stevens, with Swiss Financial Services, says this bull move is different from the one in 2008. “Fundamentals continue to follow the market up. Investors and speculators are comforted that they are not buying into a bubble that will pop like it did in the 2008 debacle.

“Then again, you can’t discount the track record of (hedge funds). Most days, we’re not trading old fashioned supply and demand fundamentals, but the flow of money seeking a return against a reasonable risk.”

Stevens said Deutsche Bank, a major international bank, “released a report Dec. 11 called, ‘Ten Reasons to Go Long Agriculture.’ The report included a chart valuing commodities in real terms. They listed 20 commodities from expensive to cheap in relation to their prices in 1972. Guess what they rated the cheapest in real terms, you guessed it, cotton.

“Speculators, investors, fund managers all take note of this kind of research, and they’re the ones driving this boat. From my perspective, cotton prices seem stretched out and a bit overbought, but yesterday (Dec. 14, when prices spiked higher) showed me wrong. The market has some room to move to the upside. It would be foolhardy to not realize that it could stay in an overbought condition for a long while.”

The market has an upward bias, added Carl Anderson, Extension economist, Texas A&M University. “I would be cautious about fixing a price for your entire crop. Right now, I’m comfortable with these prices, and I’m not really pushing to fix prices beyond 15 percent to 20 percent of the crop.”

Anderson says that new crop futures prices would likely have to exceed 80 cents per pound to entice Delta farmers to plant more cotton in 2010, “unless the price of soybeans falls sharply. I think March will have to buy some acres, so in several months, I think we could see the mid-80s or possibly the high-80s if the speculators jump on board.”

Stevens feels that the potential for increased cotton acreage in China will pressure December 2010 prices. “But I think it will be pulled up close to 80 cents.

Meanwhile, the nearby market still has a lot of breathing room on the upside, according to Stevens. “Much to the chagrin of the mills, they’re going to have to do something. The speculators are continuing to take it up – 78 cents to 82 cents is a very reasonable target.”

Neeper believes new crop December “has a shot at 83 cents and could perhaps go as high as 87 cents by sometime this spring.”